July 22 (Bloomberg) -- Governor Rick Snyder of Michigan
said yesterday that the bondholders of the city of Detroit
should expect to be “part of the process” of the largest
municipal bankruptcy in U.S. history

“Realistically, if you step back, if you were lending to
the city of Detroit in the last few years, didn’t you understand
there were major issues and problems?” Snyder, a Republican,
said on the CBS’s “Face the Nation” program. “Look at the
yields they’re obtaining compared to other bonds. They were
getting a premium.”

Detroit filed for bankruptcy July 18 after decades of
decline left it too poor to pay billions of dollars owed to
bondholders, retired police officers and current city workers.

The city faces about $18 billion of debt it must now
restructure. The bankruptcy came after too few creditors would
accept a plan offered by Emergency Manager Kevyn Orr to pay off
$11.5 billion in unsecured debt with $2 billion in borrowed
money -- an offer that would have provided as little as 10 cents
on the dollar owed. It also would have cost pensioners some
benefits.

The plight of city pensioners is “one of the other tragic
situations” in the Detroit bankruptcy, Snyder said on CBS. He
said that during discussions with creditors, “no one” wanted
to represent retirees, so he has asked the federal judge in the
case to assemble a group of retirees to speak for them.

Pension Funding

“Short-term through the end of the year, there won’t be
any change,” Snyder said. “Beyond that, the real question also
is, to the degree those pension plans are funded, that they’re
our assets, that they are not part of this process.”

“It’s the unfunded piece, and there’s a terrible history
there of mismanagement and poor investment that should get aired
out in public and should be part of this discussion,” Snyder
said on CBS.

Detroit Mayor Dave Bing said he isn’t asking for a federal
bailout.

“I think it’s very difficult right now to ask directly for
support,” Bing said on ABC’s “This Week.” Asked if the city
would get a federal bailout, Bing said, “Not yet.”

“We’re not the only city that’s going to struggle through
what we’re going through,” Bing said. “We may be one of the
first. We are the largest, but we absolutely will not be the
last. And so we have got to set a bench mark in terms of how to
fix our cities and come back from this tragedy.”

Snyder said on NBC Detroit would have continued to have
“gone further downhill” if the city hadn’t filed for
bankruptcy. On CBS’s “Face the Nation,” Snyder said he also
doesn’t expect a federal bailout.

Tough Decision

“This is a very tough decision, but it’s the right
decision,” Snyder said on NBC’s “Meet the Press” yesterday.
“The citizens of Detroit deserve better than they’re getting
today. There were no other viable options.”

Emergency Manager Orr said on “Fox News Sunday” that the
city wasn’t expecting help from the federal government, though
it would welcome some assistance.

“We’ve operated on the assumption that we have to solve
this problem on our own,” Orr said. “We are not waiting for
the calvary to rescue us.”

Michigan’s largest city joins Jefferson County, Alabama,
and San Bernardino and Stockton in California, in bankruptcy.

A state court judge ordered Snyder to withdraw the
bankruptcy petition on July 19, claiming the case violates
Michigan’s constitution. The state is seeking to appeal the
order.

Lawsuits

Kenneth Klee, a lawyer who is leading the bankruptcy
restructuring of Jefferson County, said a state judge can’t
force Detroit out of federal bankruptcy, even if Snyder agrees
to try to withdraw.

A federal judge would have to agree to dismiss the case,
said Klee, of Klee Tuchin Bogdanoff & Stern LLP in Los Angeles.

Under the protection of Chapter 9 of the U.S. Bankruptcy
Code, most lawsuits against a city are temporarily barred so the
municipality can reorganize its operations and debt without
distraction.

Orr and Snyder last week said Detroit’s crisis -- 60 years
in the making -- would take time to resolve. Orr said the
decision to enter bankruptcy came after a long build-up of
resistance to his plans and what he called an olive-branch
approach to creditors.

“What did we get for that?” Orr asked. “We’re getting
sued, consistently.”

Detroit residents should see improvements in services
within 60 days as he shores up funding, Orr said. He said he has
no plans to sell assets such as the city-owned collection at the
Detroit Institute of Arts.